Why India is so full of charlatans

Last updated on: May 13, 2010 13:14 IST

Rajeev Srinivasan on why the State must ensure that people will pay for the consequences of their actions, a concept that is sadly unknown in India.

'Clawback -- now that is a term in the American financial jargon that must be giving sleepless nights to some of the ex-Masters of the Universe from the fearsome investment banks that have fallen on hard times. This refers to the literal clawing back of benefits gained by those who, in hindsight, turn out not to have deserved them.

For instance, there is a move afoot to seize the multimillion-dollar bonuses awarded to investment bankers while their firms were creating the financial meltdown with their cavalier use of collateralised debt obligations and credit-default swaps. Those who caused billions of dollars worth of damage couldn't possibly deserve their fat bonuses.

It is not clear whether proposals to regulate Wall Street will succeed, and whether any ill-gotten gains will actually be clawed back by the taxpayer (who ended up, of course, bailing out said firms). But the very fact that this is being considered is a deterrent to future hanky-panky. That is, people would have to factor in the possibility that their malfeasance will have consequences.

India is refreshingly free of such old-fashioned niceties. In India, there are no consequences to the worst behaviour, provided, of course, that you have the right credentials -- that you belong to certain privileged categories of people, which include media mavens, film stars, politicians, cricket players, et al.

It goes beyond a lack of concern about delivering results -- it has become routine to be cynical; promises are mere expectations. Many contracts are not worth the paper they are written. It has become a national pathology, or national pastime if you prefer, to lie about what one will deliver: You too must be guilty of saying "Consider it done!" when you knew there was no way you were going to do it.

Most Indians work this into their calculations, but it baffles foreigners, thereby adding to the impression that Indians, like the Chinese, are inscrutable -- a euphemism for 'unreliable'. This makes it difficult to do business, because what appears to be an iron-clad guarantee to the outsider is often really only a 'best-efforts, god-willing' type of weasel-wording to the Indian. And Indians are accustomed to there being no penalty for lack of performance.

This is seen in every walk of life. On the one hand are the lionised cricket-players who make absolute billions. One would expect that the cricket-consuming (I am tempted to say something about Lotus-Eaters, but shall desist) classes would demand top-notch performances from their stars; but alas, they routinely put in pathetic performances because they know there are no consequences -- they will get their millions, win or lose.

I have suggested in the past that there should be some deterrents to poor performance. The least one can do is -- there again, that wonderful concept -- 'claw back' their ill-gotten earnings!

Similarly, much has been written about the lavish lifestyles of cricket executives -- who, not surprisingly, include a number of politicians. Why not set income tax on these folks and claw back the BMWs and private jets and other bling they have accumulated?

Well, perhaps the cricketers are minor villains in comparison to politicians. The naturally cynical voter, accustomed to lavish promises at campaign time, expects nothing to materialise. Experience suggests that this is wise. The elaborate ruses intended to ease rent-seeking are truly creative, a wonder to behold.

A good example is the ongoing saga of the 2G mobile telephony licenses. The circumstantial evidence is damning -- an 'auction' which was first-come, first served, and also wherein the last date for bidding is arbitrarily shortened by one week without notice. The final 'winners' included several players who were totally innocent of any telecom experience before and after. But they were quick to turn around and sell their licenses to telecom companies at 10x profit.

Interestingly, there has been no talk of clawing back these obscene and undeserved profits. The prime minister, who is said to be honest and decent and an economist, has maintained a Sphinx-like silence. The latest I heard about this is a detailed memo from the Department of Telecommunications exonerating themselves and their minister from all blame -- a 'clean chit' in quaint officialese. No penalty for anybody.

Then there is the matter of the nuclear 'deal' that India has entered into, after many promises of a wonderful energy future. This was the justification for acceding to many conditions, which, in my opinion, eviscerated India's nuclear deterrent capability and did nothing more for its energy security than create dependence on uranium-mining nations.

Interestingly enough, Pakistan and China, bellicose nuclear neighbours, have just entered into a deal for which Pakistan did not have to make any concessions whatsoever. China is giving Pakistan two nuclear plants as well as missiles: which, to put it bluntly, is pure proliferation. The United States, which screams 'non-proliferation!' whenever India is involved, was strangely silent. In other words, yet another scam has been perpetrated.

Is anybody losing his job, or are they being prosecuted, for misleading the Indian public and walking the country down the garden path? Of course not. Similarly, the country is suffering the worst inflation in decades, and the price of food items in particular have shot through the roof. Has anybody been punished? Of course not.

By not putting in place mechanisms to ensure there is punishment for sinning, India is creating the right environment for 'moral hazard'. People will take unnecessary risks, secure in the knowledge that if they win, they keep the loot; if they lose, the taxpayer pays. No wonder India is so full of charlatans.